Tuesday, July 15, 2014

In Deluge of Funds, Investors Sink or Swim

No wonder people find investing bewildering. The mid-year report on mutual funds in The New York Times contains page after page after page – ten pages in all – of mutual fund listings. If printed in type big enough to read, the listings would have covered 12 or 15 pages.

For the would-be investor, this sea of funds must be a daunting sight.

Yet it used to be even scarier. After cresting above 8,000 before the Great Recession, the number of mutual funds has eased off. Jack Bogle estimates that 7 percent of equity mutual funds gave up the ghost each year from 2001 to 1012.

Even so, more than 7,000 mutual funds are still operating.

And that's not all. Joining the thousands of conventional load and no-load funds are about 1,600 exchange-traded products, primarily ETFs.

In part the deluge of funds is an optical illusion. Sizable segments of the mutual fund listings consist of house funds – products intended for customers of a bank, brokerage or insurance company. Other funds may be moribund relics of faded hopes or failed algorithms.

Likewise, most exchange traded funds (or "products," to use the umbrella term) are lucky to get their names in the paper. Of 1,600 funds, a mere 241 hold almost 90 percent of the assets.

Perhaps the deluge of funds indicates the need for investment advisers, although fund-picking is no easier than stock-picking.

Or perhaps the deluge is driving bewildered investors toward online services that offer simple portfolios of a few basic ETFs.

What do you think?

1 comment:

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